SEC on Cryptocurrency Regulation and Market Manipulation

Recommends the Howey Test

The Crypto Space Awaits Clarification From the SEC

The US SEC Chairman, Jay Clayton, has variously made it known that the SEC is supportive of the concept of the blockchain. However, they are not ready to change the definition of a security anytime soon to include cryptocurrency. Meanwhile, the community continues to await clarification on:

Is Bitcoin a security?

Are ICOs securities?

Are alt-coins (like Ether and Ripple) securities as well?

SEC Suggests the Howey Test

At an exclusive CNBC Fast Money interview, Brett Redfearn shed some light on the SEC’s current view of the cryptocurrency market. In his first interview ever as the Director of the Division of Trading and Markets of the SEC, Redfearn advised market participants in the space to run the SEC’s prong test- the Howey test. The test enables people to look at a set of characteristics and decide whether or not that product meets the criteria of being a security. Meanwhile, the SEC is trying to clarify wherever it can, and will continue to issue statements in this regard to provide more clarity and direction, informed Redfearn.

Having said that, the likelihood of litigation of cryptocurrency products continues to remain uncertain. And, the crypto space doesn’t seem to be much geared towards coming forth and asking the SEC for registration or regulation, either.

Regulating the Cryptocurrency Space: 3 Key Aspects

Now, the 3 key aspects that the SEC is looking at currently with respect to the cryptocurrency space, are:

Their success or failure thereof to qualify as securites

Broker / dealer registration requirements for those dealing in these products

Registration as an exchange or an ATS (Alternative Trading System) by a virtual currency exchange.

Is the Infrastructure Ready?

The overall infrastructural requirements for this space to completely come under the regulatory purview of the SEC have been partly set up, Redfearn informed. For instance, regulations regarding broker / dealer registrations and registering as an ATS are already in place.

Redfearn also mentioned that there are certain institutions that have come forward and submitted forms to be registered as an ATS. The SEC would like to see more of those. For now, the SEC believes that the marketplace for cryptocurrencies is still evolving and is still a largely unregulated space. They do encourage it to develop into a sound regulatory structure.

On Market Manipulation

The SEC remains highly concerned about the extent of market manipulation that these markets are subject to. Stressing the need for regulation in the space, Redfearn mentioned spoofing, pump-and-dump schemes and fraud as the key techniques that are currently manipulating the market.